Tuesday, September 8, 2009

Public Policies and FDI Location: Differences between Developing and Developed Countries

By Timothy Goodspeed, Jorge Martinez-Vazquez (International Studies Program, Andrew Young School of Policy Studies, Georgia State University) and Li Zhang

Host country government officials in developing and developed countries alike would like to know the impact of their public policies on foreign investment in their countries. Unfortunately, the literature does not provide a single view, and there are likely to be differences between developing and developed countries.

This paper examines the impact of three host country government policies on the host’s FDI stock: taxation, good governance, and infrastructure.

We focus on whether the impact of these factors on FDI differs depending on the level of development of the host country.

The regression results indicate that FDI is sensitive to host country taxation in developed countries, but not in developing countries; FDI is sensitive to host country corruption in developing countries but not developed; and FDI shows sensitivity to host country infrastructure quality in both developed and developing host countries, though FDI appears to be more sensitive in developing host countries.

Keywords: FDI, Developing countries, Developed countries, Foreign Direct Investment

URL: http://d.repec.org/n?u=RePEc:ays:ispwps:paper0910&r=dev